Russia’s GDP drops 28% due to lockdown

Russia’s GDP dropped by as much as 28% in April, according to the Finance Ministry report on federal budget execution.

The COVID-19 lockdown was the primary reason for the plunge. Declining oil prices factored in to about 30%.  

Russia’s GDP was hit twice in April from several sides, according to AMarkets Analytics Director Artem Deev. One of the first blows came from the torn-up trade deal with Saudi Arabia when on March 6, OPEC+ countries failed to agree on reducing oil production and its cost fell from $51–53 to below $35 per barrel. With Russia’s budget expenditure having been calculated based on the oil price of at least $42.4, the development created a budget deficit.

Russia has been through several economic crises before but this one is unique. Citizens had to self-isolate to protect their own health. Many companies suspended operation. People stopped buying anything but groceries.

“The non-working period in April had an adverse effect on the GDP, pulling it down by at least one quarter compared to the previous year. The annual drop will not be as significant because the government is taking action to support affected industries, SMEs, and provide financial support to the population. While in 2019, Russia’s GDP amounted to RUR 110 trln ($1.5 trln), in 2020 it will lose around 5% (positive scenario) but not more than 8% (negative scenario),” the analyst predicts. A great deal depends on how fast restrictions will be lifted and whether international air travel resumes.”

BCS Broker stock market expert Mikhail Zeltser argues that the GDP drop is not surprising considering major obstacles in business operations. The suspended consumer services sector, which accounts for almost 54% of the country’s GDP (according to the World Bank), is mainly responsible for the drop.

“The decline in business activity in our country is similar to the global trend. While according to the Federal Reserve System, the US economy may lose 30% in Q2, Russia’s position is exacerbated by the fact that its economy is focused on commodity exports. The panic in the energy market peaked in April. Clearly, by the end of May, the oil prices will be substantially higher than the April average – perhaps, even 50% higher. Therefore, in May, Russia’s GDP will expectedly recover. We estimate that the quarterly GDP, which includes April, will not be above 13%. What will follow is a long process of economic recovery. Russia may return to the upward trajectory as soon as the end of Q1 2021.”

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